Prime Minister Liz Truss resigned on Thursday sparking a new leadership race. Getty Images
Prime Minister Liz Truss resigned on Thursday sparking a new leadership race. Getty Images
Prime Minister Liz Truss resigned on Thursday sparking a new leadership race. Getty Images
Prime Minister Liz Truss resigned on Thursday sparking a new leadership race. Getty Images

Business

Economy

UK outlook cut to 'negative' by Moody's over political turmoil

Rating agency also notes risk of sustained weakening in policy credibility

Simon Rushton
Simon Rushton

October 21, 2022

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The outlook for the UK’s credit score was revised to negative by Moody’s Investors Service following weeks of turmoil in the British government, during which the new prime minister resigned after only 45 days.

The rating agency said the change was driven by “heightened unpredictability in policymaking” amid weaker growth prospects, high inflation and “risks to debt affordability from likely higher borrowing”.

The company affirmed the country’s rating at Aa3, a statement said.

The rating action comes several weeks after the firm said that the UK government’s mini-budget, which was later scrapped, risked doing lasting damage to the nation’s debt affordability.

It also noted a risk of a sustained weakening in policy credibility.

Liz Truss resigned on Thursday to become the shortest-serving prime minister in history.

  • British Prime Minister Liz Truss has resigned from her position. Here, 'The National' takes a look at the candidates vying to replace her, including former Chancellor of the Exchequer Rishi Sunak, above. PA
    British Prime Minister Liz Truss has resigned from her position. Here, 'The National' takes a look at the candidates vying to replace her, including former Chancellor of the Exchequer Rishi Sunak, above. PA
  • Britain's Leader of the House of Commons Penny Mordaunt. AFP
    Britain's Leader of the House of Commons Penny Mordaunt. AFP
  • Former Prime Minister Boris Johnson. Reuters
    Former Prime Minister Boris Johnson. Reuters
  • Former Home Secretary Suella Braverman. EPA
    Former Home Secretary Suella Braverman. EPA
  • Britain's Defence Secretary Ben Wallace. AFP
    Britain's Defence Secretary Ben Wallace. AFP
  • Current Chancellor of the Exchequer Jeremy Hunt. PA
    Current Chancellor of the Exchequer Jeremy Hunt. PA

Her mini-budget was a package of unfunded tax cuts and spending promises that caused markets to panic.

During her short premiership, gilt yields posted some of their biggest moves on record and the pound sunk to a record low.

Both Fitch Ratings and S&P Global Ratings lowered the country’s outlook to negative after Ms Truss’s tax cut plans amid rising fiscal risks. S&P rates the nation AA, the third-highest level, while Fitch Ratings scores it one level lower at AA-.

The pound fell 0.8 per cent on Friday to a weekly low of $1.115, reversing the brief rally after Ms Truss announced her departure. It dropped 0.5 per cent against the euro to €1.142.

The slide came as Conservative MPs began manoeuvring for the frantic week-long leadership contest to succeed Ms Truss.

Rishi Sunak, Boris Johnson and Penny Mordaunt are in the frame to succeed Ms Truss but none of them are yet considered the clear favourite.

Market moves have been particularly closely watched in Westminster since the botched mini-budget on September 23 drove Britain into economic turmoil.

The package of more than £40 billion ($44.5bn) in tax cuts led to a crash in sterling's value, a jump in mortgage costs and an emergency intervention by the Bank of England to protect pension funds.

Ms Truss's authority never recovered from the mayhem.

The contest to succeed her is being compressed into a week so that the new leader will be in place before October 31, when the chancellor is expected to set out a new fiscal plan.

MATCH INFO

Bayern Munich 2 Borussia Monchengladbach 1
Bayern: Zirkzee (26'), Goretzka (86')
Gladbach: Pavard (37' og)

Man of the Match: Breel Embolo (Borussia Monchengladbach)

While you're here
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

If you go

The flights

Fly direct to London from the UAE with Etihad, Emirates, British Airways or Virgin Atlantic from about Dh2,500 return including taxes. 

The hotel

Rooms at the convenient and art-conscious Andaz London Liverpool Street cost from £167 (Dh800) per night including taxes.

The tour

The Shoreditch Street Art Tour costs from £15 (Dh73) per person for approximately three hours. 

While you're here
Recommended
If you go

The flights
Emirates flies from Dubai to Seattle from Dh5,555 return, including taxes.


The car
Hertz offers compact car rental from about $300 (Dh1,100) per week, including taxes. Emirates Skywards members can earn points on their car hire through Hertz.


The national park
Entry to Mount Rainier National Park costs $30 for one vehicle and passengers for up to seven days. Accommodation can be booked through mtrainierguestservices.com. Prices vary according to season. Rooms at the Holiday Inn Yakima cost from $125 per night, excluding breakfast.

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MATCH INFO

Manchester United v Everton
Where: Old Trafford, Manchester
When: Sunday, kick-off 7pm (UAE)
How to watch: Live on BeIN Sports 11HD

While you're here
Why it pays to compare

A comparison of sending Dh20,000 from the UAE using two different routes at the same time - the first direct from a UAE bank to a bank in Germany, and the second from the same UAE bank via an online platform to Germany - found key differences in cost and speed. The transfers were both initiated on January 30.

Route 1: bank transfer

The UAE bank charged Dh152.25 for the Dh20,000 transfer. On top of that, their exchange rate margin added a difference of around Dh415, compared with the mid-market rate.

Total cost: Dh567.25 - around 2.9 per cent of the total amount

Total received: €4,670.30 

Route 2: online platform

The UAE bank’s charge for sending Dh20,000 to a UK dirham-denominated account was Dh2.10. The exchange rate margin cost was Dh60, plus a Dh12 fee.

Total cost: Dh74.10, around 0.4 per cent of the transaction

Total received: €4,756

The UAE bank transfer was far quicker – around two to three working days, while the online platform took around four to five days, but was considerably cheaper. In the online platform transfer, the funds were also exposed to currency risk during the period it took for them to arrive.

Ten tax points to be aware of in 2026

1. Domestic VAT refund amendments: request your refund within five years

If a business does not apply for the refund on time, they lose their credit.

2. E-invoicing in the UAE

Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption. 

3. More tax audits

Tax authorities are increasingly using data already available across multiple filings to identify audit risks. 

4. More beneficial VAT and excise tax penalty regime

Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.

5. Greater emphasis on statutory audit

There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.

6. Further transfer pricing enforcement

Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes. 

7. Limited time periods for audits

Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion. 

8. Pillar 2 implementation 

Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.

9. Reduced compliance obligations for imported goods and services

Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations. 

10. Substance and CbC reporting focus

Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity. 

Contributed by Thomas Vanhee and Hend Rashwan, Aurifer

Classification of skills

A worker is categorised as skilled by the MOHRE based on nine levels given in the International Standard Classification of Occupations (ISCO) issued by the International Labour Organisation. 

A skilled worker would be someone at a professional level (levels 1 – 5) which includes managers, professionals, technicians and associate professionals, clerical support workers, and service and sales workers.

The worker must also have an attested educational certificate higher than secondary or an equivalent certification, and earn a monthly salary of at least Dh4,000. 

Premier League results

Saturday

Crystal Palace 1 Brighton & Hove Albion 2

Cardiff City 2 West Ham United 0

Huddersfield Town 0 Bournemouth 2

Leicester City 3 Fulham 1

Newcastle United 3 Everton 2

Southampton 2 Tottenham Hotspur 1

Manchester City 3 Watford 1

Sunday

Liverpool 4 Burnley 2

Chelsea 1 Wolverhampton Wanderers 1

Arsenal 2 Manchester United 0

 

UAE currency: the story behind the money in your pockets
MATCH INFO

New Zealand 176-8 (20 ovs)

England 155 (19.5 ovs)

New Zealand win by 21 runs

WRESTLING HIGHLIGHTS
On Women's Day
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Updated: October 22, 2022, 5:33 AM
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